The 5 Best Dividend Stocks in Canada to Buy and Hold

With all the choices out there on the TSX, you may be wondering what are the best dividend stocks in Canada to buy?  I am a huge fan of Canadian dividend stocks though I make sure my asset allocation is still on point so that I do not have too much Canadian home bias in my investment portfolio. 

It can be easy to get carried away, at one point I had over 50% of my portfolio (I think it was actually closer to 60%) in Canadian investments.  Now I try to keep my Canadian exposure to under 35% and invest mainly in an ex-Canada ETF like VXC or XAW and VTI. 

The best Canadian dividend stocks to invest in can be different for each Canadian investor.  Here are the 5 dividend stocks in Canada that I think would make a great addition to your dividend investing portfolio.

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Last updated January 2022

Although most of my portfolio is now ETFs, I still have about 50% of my portfolio in individual stocks, with a preference for Canadian dividend paying stocks with their preferential tax treatment. 

Here’s the break down of my dollar cost averaging and dividend approach, if you are interested.  I just love this form of passive income and really think dividends are like ocean waves.

What is a Canadian dividend?  A Canadian dividend is a magical unicorn especially in a non-registered portfolio because the dividends received are taxed more efficiently and advantageously.

How much are dividends taxed?  You could be receiving over $50,000 of income in Canadian eligible dividends and not pay any tax (provided there are no other sources of income) in British Columbia. 

Related: How are dividends taxed in Canada

Are dividends considered income in Canada?  Yes, dividends are considered income in Canada, but there’s a positive caveat.

A lot of dividend income from Canadian corporations can be tax free in Canada, because of the tax credit.  However, if you keep your Canadian dividend paying companies in a TFSA it will be guaranteed tax free (any capital gains, any dividend income, is all tax free in a TFSA).  

Related:  10 Easy Ways to Earn Passive Income in Canada

What are the best dividend stocks in Canada?

Here are the best Canadian dividend stocks to invest in, the best dividend stocks in Canada, in my humble opinion.  These are high dividend blue chip stocks in Canada. 

If you use Questrade, you could even set up a Questrade Drip to buy more when your dividends roll in.  Personally I reinvest my dividends with cash though with the exception of Sunlife Financial.

The dividend yield for these Canadian dividend stocks still certainly beats the interest rates banks are providing in this ridiculously low interest rate environment.

Using a stock screener can help you research stocks and REITs to build a watch list of Canadian dividend companies to invest in when the price becomes right.

You could also follow some Canadian dividend investing blogs for inspiration.

Without further delay, here are some of the best long term dividend stocks in Canada to buy and hold.

 

Bank of Montreal (BMO.TO)

Canadian Financials are a big part of the TSX and the best dividend stocks in Canada, at least 1/3 of the TSX index is made up of Canadian financials.  It makes sense to hold a Canadian bank as a portion of your Canadian portfolio.  They did ridiculously well in 2021 (40% return) and also increased their dividend by the highest of all the Canadian banks in 2021, they increased their dividend by over 22%.

In fact, the 12 month return of BMO is 51% as of writing in early 2022.

I have a number of Canadian banks, including BMO, TD Bank, and National Bank.

BMO is the eighth largest bank in North America by assets.  They have total assets of $980 billion as of Fall 2021.  They have been around since 1817 and BMO is Canada’s oldest bank.  That’s over 200 years old! 

In addition, BMO has paid dividends since 1829.  That’s over 190 years.  You really can’t get more solid than that.

I’ve been a shareholder of BMO since 2011.  

• BMO has had continuous dividend increases since 2011
• The TTM Dividend Payout Ratio is 36.61%
• Their dividend payout is $5.32 per share
• The dividend yield is 3.69%
• BMO’s Forward P/E ratio is 11.19

There are plenty of other Canadian Financial Dividend Paying stocks to choose from: National Bank (NA), TD Bank (TD), Royal Bank (RY), Bank of Nova Scotia (BNS) to name a few.  I am planning to add more TD Bank to my portfolio.

I think Canadian banks (compared to American banks) are a pretty solid option to invest in despite the pandemic and recession.  Even Americans like to invest in Canadian banks.

Power Corporation of Canada (POW.TO)

Power Corporation is a holding company of many companies, one of which is a 65.5% stake in Power Financial Corporation (PWF.TO), which in turn owns a 67.7% stake in publicly traded Great-West Lifeco (GWO.TO) Great-West LifeCo Insurance (with insurance companies in Ireland, Canada, and the United States to name a few), IGM Financial Incorporated, which owns Investors Group and Mackenzie Financial Corporation. 

Power Financial Corporation also has ownership in Wealthsimple, the leading robo-advisor available in North America.  Many Canadians are also familiar with Wealthsimple as the Robinhood of Canada, where they will have $0 trading commissions through Wealthsimple Trade for Canadians. 

Wealthsimple was founded by a young millennial named Michael Katchen who managed to get $37 million in funding from Power Financial Corporation at age 29!  

Wealthsimple has announced that they will expand to allowing Wealthsimple Trade users to buy and sell Bitcoin and Ethereum for $0 commission.

Here is POW.TO’s corporate structure:

Here is my novice stock analysis of Power Corporation of Canada.  The stock price has finally become a ‘dividend growth stock’ in 2021 and has increased by over 30%.  The 12 month return is 36% as of writing (January 2022).   Power Corporation of Canada is in the life insurance sector.

• The TTM (Trailing Twelve Month) Dividend Payout Ratio is 41.48% 
• They have been steadily increasing their dividend since 2015 and increased their dividend by over 10% in 2021.
• Their annual dividend is $1.79 per share
• The forward dividend yield is a 4.41% as of writing (January 2022)
• There was a period of no dividend increases from 2008 until 2015 from POW.TO

Fortis Inc (FTS.TO)

This is probably my all time favourite Canadian Dividend Paying Stock.  It is a Canadian utility stock.  Utilities make up under 4% of the Canadian index but they are mighty!

Fortis is a utility company that was formed in 1987 (but has its roots in St. John’s Electrical Company formed in 1885 in Newfoundland).  It started with $390 million in assets and today has $57 billion in total assets and 3.3 million utility customers. 

It provides electricity and gas in five Canadian provinces (BC being one of them- in fact our natural gas bill is with Fortis), nine US States, and three Caribbean countries.  There is a 6% planned average annual growth estimated at least until 2025.

I have owned this stock since 2009, that’s over 10 years ago (I have kept adding as the years go by).

• The TTM dividend payout ratio is 72.08%
• The forward annual dividend yield is 3.69%
• The forward dividend payout is $2.02 per share
• FTS.TO has had the dividends steadily increase for the past 49 years!
• FTS.TO has paid dividends for the past 49 years (since 1972)

This is their impressive dividend history and dividend payout ratio:

Telus Corporation (T.TO)

The Telecoms, or telecommunications are another large part of the Canadian economy.

Everyone has a smart phone.  Everyone has Internet (well, not every one, but a lot of Canadians do!).

I consider Internet and phone plans pretty much a ‘utility’, since Internet has been so ubiquitous in our lifestyles.  Internet access is much more important to me than having television or cable, or even Netflix.  I think this is true for most Canadians these days.

Telus is a telecommunications company founded in Vancouver, Canada since the 1990’s (though it founded because BC Tel merged with Telus from Alberta). 

It is one of Canada’s major telecommunications providers and provides Internet for over 40% of the Canadian population and about 30% of the wireless communications market (smart phones, phone plans, cell phones).

In fact, I’m one of them!  I’m a Telus wireless and Internet customer and have been for over 20+ years (it started with a pager in high school when I got a friend to use his credit card and I paid him back) and over 8 years for Internet.

I haven’t always been a happy customer but I’m just accustomed to what I am used to I guess!

Telus has been paying dividends regularly.  They said they would increase the dividend on a semi-annual basis, by 7 to 10% from 2017 to 2019.  Then in 2019, Telus also said they are committed to aim for ongoing semi-annual dividend increases, with the annual increase in the range of 7-10% from 2020 through to the end of 2022.  

In 2020, Telus had a 2 for 1 stock split.

• The forward dividend is $1.31 per share 
• The dividend yield is 4.38%
• The TTM payout ratio is 62% (their goal dividend payout is between 65 to 75%)
•  The dividends have increased annually since 2004

Fairfax Financial

Fairfax Financial Holding Ltd (FFH.TO) is a holding company lead by CEO and chairman Prem Watsa, who is often known as the Warren Buffett of Canada.  It was founded in 1985 and is based in Toronto, Ontario. 

Fairfax Financial is similar to Berkshire Hathaway in that it is a holding company and is involved with property and casualty insurance.

The website is so ‘no frills’ that it looks like it is from the early 2000’s.

It owns about 8% in Blackberry, and bought Toys R Us in 2018.  

It was selling at a deep discount to book value and is still ‘cheap’.  In 2022 so far, the 12 month return is over 36%.

Here is recent dividend information from Fairfax Financial.  Even though the dividend is paid in USD (they announced a $10 USD per share dividend).  These are considered eligible Canadian dividends because it is a Canadian company.

• The dividend payout is $10 US per share payable once a year in January of each year
• The forward dividend yield is 2.08%

In 2020, Prem Watsa spent $150 million in a stock buyback and he also bought back $1 billion in shares in 2021.  He had said in 35 years of his company, he has never seen his stock at such a discount to intrinsic value.

Fairfax Financial is a long term investment as should be all your Canadian dividend stock selections.

There we have it, my five best dividend stocks in Canada to invest in.  You can follow along with my dividend income posts that are published quarterly to see my dividend income continue to grow with these best dividend stocks in Canada.

Is higher dividend yield better?  Not always, especially if it means their dividend yield is unsustainable.  Solid companies like Fortis and Canadian banks have reasonable dividend yield (not over 7%).

If you’re interested in learning how to buy ETFs for free for your TFSA investment portfolio instead of investing with Canadian dividend paying stocks in a discount brokerage like Questrade, you can check out my step-by-step guide here. 

Alternately, you could do what I do, and do dollar cost averaging and investing in moderation with both dividend paying companies and exchange traded funds, or index investing.  I really like the balanced approach. 

Most of my portfolio is the index, but I like to invest in dividend paying companies too and hence therefore adopt a hybrid investing apporach.

How are dividend stocks taxed in Canada?

I hold a lot of Canadian dividend paying stocks within my TFSA because no tax is better than a little tax, but you can keep them outside of your TFSA or registered accounts since they are taxed favourably as Canadian dividend companies. 

You can also check out my post for more information on tax efficient investing in Canada.  If I had organized my portfolio better in the past, I would definitely keep more Canadian dividend paying companies outside of my Tax Free Savings Account, or TFSA.

If dividend stocks are in your child’s RESP they are not taxed either until the RESP withdrawal happens for post secondary.

Before you go, don’t forget to download my free handy dividend yield spreadsheet tracker so that you can track your dividend income from the best dividend stocks in Canada 😉   Here’s the post on how to use a dividend yield spreadsheet.

For more dividend investing ideas, here are the 5 best dividend investing books to read as a beginner.

Readers, what are your best long term dividend stocks in Canada to invest in?

Disclaimer:  This blog post is meant for educational and entertainment purposes only and is not to provide investment advice. Before you make any investment decision, you should always do your own research!

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My favourite free Canadian financial tool I’ve been using since 2017 to manage my net worth and track my investment return is Wealthica.  Each month I check and track my dividend income to make sure my passive income keeps on coming.  It’s like Personal Capital for Canada.

My favourite Canadian high interest savings account that pays 1.65*% interest is EQ Bank.

Finally, my favourite discount investment brokerage is Questrade.  Here’s $50 in free trades to get you started.

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